Correlation Between Hong Leong and ES Ceramics

Can any of the company-specific risk be diversified away by investing in both Hong Leong and ES Ceramics at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Hong Leong and ES Ceramics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hong Leong Bank and ES Ceramics Technology, you can compare the effects of market volatilities on Hong Leong and ES Ceramics and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Hong Leong with a short position of ES Ceramics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and ES Ceramics.

Diversification Opportunities for Hong Leong and ES Ceramics

-0.54

Correlation Coefficient

Hong Leong  ES Ceramics

Excellent diversification

The 3 months correlation between Hong and 0100 is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and ES Ceramics Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ES Ceramics Technology and Hong Leong is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Hong Leong Bank are associated (or correlated) with ES Ceramics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ES Ceramics Technology has no effect on the direction of Hong Leong i.e., Hong Leong and ES Ceramics go up and down completely randomly.

Pair Corralation between Hong Leong and ES Ceramics

Assuming the 90 days trading horizon Hong Leong Bank is expected to generate 0.16 times more return on investment than ES Ceramics. However, Hong Leong Bank is 6.18 times less risky than ES Ceramics. It trades about -0.01 of its potential returns per unit of risk. ES Ceramics Technology is currently generating about -0.07 per unit of risk. If you would invest  2,028  in Hong Leong Bank on December 31, 2024 and sell it today you would lose (14.00) from holding Hong Leong Bank or give up 0.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hong Leong Bank  vs.  ES Ceramics Technology

Hong Leong Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hong Leong Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hong Leong is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

ES Ceramics Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days ES Ceramics Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Hong Leong and ES Ceramics

The main advantage of trading using opposite Hong Leong and ES Ceramics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Leong position performs unexpectedly, ES Ceramics can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ES Ceramics will offset losses from the drop in ES Ceramics' long position.

The idea behind Hong Leong Bank and ES Ceramics Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.